PNG, You Were Right!

On ABC's Nightline tonight was a full report about Japanese "Zombie" (dead men walking) banks. It was very interesting, and so many of the things they said were exactly what you had told us, PNG. The transcript should be out soon, and I will post it for you to see.

Answers

Correct me if I'm wrong here, but it seemed ABC's Nightline referred
to a chart that means it would take 1/4th of the income from "every"
single citizen in Japan just to climb out of their monetary hole.
(With nothing to show for it other than starting at ground zero).

Gayla, who's PNG and can you post a link to his posts about this? I
watched Nightline too with amazement and fright, as I remembered
reading bits and pieces on several forums as well as here on things
happening here very similar to what is happening in Japan. I kept
telling my husban how ironic that they reported on Japan's economy as
if our own banking system was totally diferent and above thiers.

PNG (aka: Pacific Natural Gas 8
Need to get hold of him? Ask in the "New Questions" section - several of us have just posted a question out there with his initials on it somewhere in the title. When time permits, you get an answer.

Thanks for the information, Gayla. I've been pretty busy lately...life getting in the way.
After a quick review of the transcript, here are a few comments I'd like to add:

1) The amount of debt quoted is $1 trillion (US). Not true. The debt is $2 trillion (US) and will climb higher as more loans become
unrecoverable from foreign and domestic default. The bankruptcy rate in Japan is now the same as during the Great Depression. The
interest payments on many yen loans made to Asian countries by Japanese banks are due next month and 1stQ next year (Japanese
4thQ). As of today, I rate the probability of (virtual) default at 95%. These are only the interest payments... The Japanese banks will
try to renegotiate terms and extend other (uncollectable) loans to keep from having to report these enormous loans as
unrecoverable. This is the purpose of the Japanese goverment extending loans to Asian countries now. They give the Asian
countries the cash to give back to the Japanese banks as interest payments. Image is always more important than substance. It
doesn't change the fact that the banks are essentially bankrupt.

I don't know the credentials or location of Professor Calomiris, but I suspect he is no longer in Japan and uses only published
material and academic contacts to develop his analysis.

Let's put an image to this debt. If you stack $100 bills on the floor, $1 million is just under 4 feet tall. If you don't believe me, try it in
your living room tonight.
$1 billion is about the height of four (4) Sears Towers (Chicago) stacked one-on-top of each other.
$1 trillion is about 4,000 Sears Towers stacked on top of each other.
$2 trillion is a stack of $100 bills reaching about 1,500 miles into space.
$2 trillion is a stack of $1 bills about 60% of the distance to the moon.

2) I believe it is fundamentally important to remember that banks and goverments have no money. The depositors and taxpayers
gave this money (in good faith) to these institutions. Who guarantees bank deposits? The government. Where does the government
get the money to guarantee the deposits? From the depositors and taxpayers again. The banks pay a portion of deposits to the
government as a premium for the insurance. The same people must pay again.

3) Fiduciary responsibility. Japan has no enforcement of fiduciary responsibility. A person holding up a convenience store by
knifepoint will receive a harsh prison sentence for stealing the equivelent of $100. A Japanese prison is not a pleasant experience.
Prisoners sit cross-legged in the center of their cell floor all day and are not allowed to speak or lean against a wall. All white-collar
sentences are suspended. No business executive goes to prison for stealing or embezzling money. The lesson learned is that it is
better to embezzling (steal) millions than steal hundreds. There is no risk or responsibilty. A company chairman will resign in a
tearful news conference to take responsibility for a financial scandal, only to be immediately rehired as an "advisor" with the same
salary and responsibility. This lack of fiduciary responsibility means that covering up and lying about financial mismanagement has no
risk... only reward if you don't get caught.

3) What's being done to fix the problem? Nothing. The debts are the result of the same circumstances that created the S & L crisis in
America. The Japanese have been hiding these debts for years. The ultimate in denial. The Japanese version of the RTC will take years
to yield any results. The temporary fiscal stimulus packages do not address the debt. The packages will require the local
governments to ante up money for public works projects. The local governments are broke. The attempts to bring international
accounting standards are only window-dressing. The Japanese "Big Bang" will take on a unique Japanese style that will only
frustrate the recent crop of American and European financial companies "thinking" real opportunities exist. The Japanese are
masters at delay and obfuscation. They are still debating over the semantics of how to tell China this week that they are sorry about
any alleged events that may have happened during war - without actually apologizing...

4) Are the Japanese banks, government and companies financial idiots? Let's consider the debts from the 1980's as spinning plates.
Remember the circus performers spinning plates on those slender sticks? How many can they keep spinning at one time? The U.S.
and Europe were able to spin only 10 plates for about 2 years before they had to take action (S & L bailout). From the Japanese
perspective, they are 32.0216 times more clever and efficient than Americans and Europeans - they have been able to spin 40 plates
for over 8 years.

Individually, the Japanese people are far from being idiots; however, the Japanese collective society and dogmatic culture is partly
based on the idea: If I don't see it - it doesn't exist. Japanese common sense and western common sense are opposing forces.

5) Next year, Japanese companies will be required to reveal the status of their pension funds (they don't really have pension funds
per se, only cash used by the companies). In Japan, the majority of companies pay a lump-sum at retirement. Japanese baby boom
years were 1947 to 1953. Most companies have mismanaged the pension money and will be unable to pay the promised lump-sum at
retirement. They may not even be able to fund annuity type pensions because of the magnitude of these losses plus the current
economic "Desession" (my word...I think Japan has one foot into the D-word already) is draining these funds from company coffers.
There are no laws to protect or insure retirement money. This is a dangerous position, but asset management is getting more
attention and interest now. One more log being added to the fire.

6) y2k. If Japan is still in denial about WWII, how deep is their y2k denial? "If I don't see it - it doesn't exist." "Image is more
important than substance." From where I sit, 25 minutes from Tokyo, the Gartner Group is overly optimistic about Japan. I see big
manufacturing problems next year. I think telecommunications and utilities (if fossil fuel delivery interruption is less than1 week)
will be on par with the U.S.. Banking and transportation scare me to death.

I forsee opportunities for American and European complient manufacturing companies, especially LSI (Large Scale Integrated
circuits), standard printed circuit board fabricators and precision machining companies, to offer contracted OEM manufacturing to
Japanese electronics and other companies who will never finish remediation in time. There will be plenty of business available... if
they know someone in Japan to contact...(hint).

Financial Prognosis: Japan is going to continue to delay, hide and do things the "Japanese way." No amount of foreign cajoling or
pressure will increase of pace of action - never has and never will. Japanese banks are rapidly retreating from overseas operations. I
do know that the spinning plates are slowing down...I just don't if the world economy can wait for Japan.

Wouldn't the vaunted Japanses insistance on "Quality Assurance" and Total Quality Managenment type business philosophy's contradict their "cultural" preference for "saving face" and hiding such failures/impending failures? If the "customer satisfaction" is required, are they not worried about their suppliers/customers failing?

Also, interest rates were (I think) extremely low - becausee of favorism between business conglomerates/government/banks - does that help or disguise (postpone) the apparent disaster?